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ADT LOGO
ADT LIMITED
Table of Contents
A. Executive Summary
B. Forces Shaping the Electronic Security Services Industry
C. Overview of ADT's Electronic Security Services Business
D. Initiatives for Future Growth
Appendix: Why Shareholders Should Vote Against Western Resources' Proposal
EXECUTIVE SUMMARY
Executive Summary
ADT Present and Future
Number 1 electronic security services company in North America and
United Kingdom.
Recurring contractual payments from over 1.7 million customers currently
generating $885 million of annualized revenues.
Strategic redeployment of assets to focus on core electronic security
business.
- Pending sale of U.S. vehicle auction business
- Sale of U.K. vehicle auction business
- Acquisition of Alert Centre, Inc.
- Acquisition of Automated Security (Holdings) PLC
Shift from product focus to service focus: Changing image from a company
that sells alarm systems to a company that provides customer-specific
security solutions.
Well positioned to capitalize on forces shaping the electronic security
services industry.
- Dominant market share position in growth industry
- Opportunities to consolidate fragmented industry
- Significant scale and scope advantages over competitors
- Strong new initiatives to enhance role as service provider
Executive Summary
Key Characteristics of ADT's Electronic Security Services Business
Leading market position with national service delivery
High margin service industry
Substantial operating leverage
Strong cash flow generator
Consolidating industry
Significant growth opportunities
Executive Summary
ADT's Electronic Security Services Business: Geographic Breakdown
GRAPHICS:
PIE CHART PIE CHART
CAPTION: 9 months 1996 Sales: CAPTION: 9 months 1996
$1,038.8 Million EBIT: $159.1 Million
Illustrating: 24% Europe Illustrating: 19% Europe
76% North America 81% North America
Forces Shaping the Electronic Security Services Industry
Forces Shaping the Electronic Security Services Industry
Industry Trends
The electronic security services industry is consolidating, but remains
highly fragmented. The top 100 companies account for approximately 23% of
the $12.9 billion market.(*) Industry participants include ADT (the only
national company), Ameritech, Honeywell, Borg-Warner and approximately
13,000 smaller local and regional companies.
In recent years, there have been significant advances in the systems
utilized by the electronic security services industry:
- Improvement in computer and telecommunications technology including
wireless
- Wider use of semi-conductor components and microprocessor-based
control panels
- Development of digital communications technology
- Allows transmission of voice and data signals over regular
telephone lines
- Eliminates the need for dedicated telephone lines and special
circuitry
- Reduces the cost of monitoring services to end-users and
permits the monitoring of subscriber accounts over a wide
geographic area from a single central monitoring station
Larger, integrated electronic security systems companies who now have the
ability to operate on a regional national basis now have a competitive
advantage because they can achieve significant economies of scale. Ongoing
(*)Source: Security Distributing & Marketing May, 1996
industry consolidation should enhance these economies of scale and build
significant brand equity for the major industry players.
Forces Shaping the Electronic Securities Services Industry
Schematic Review of the Electronic Security Services Industry
GRAPHICS
<TABLE>
<CAPTION>
Initial Sale Ongoing Relationship
------------ --------------------
<S> <C> <C> <C> <C>
Product/ Product Sales End-User Alarm Monitoring
System - Advent of - Price points - Average monthly
Design digital & from $200 to rate is $24
wireless $2,000+ - Average customer
- Lease terms life is 10 years
are common - Contracts are
- Smaller typically 2 to 3
operators years in length
use minimal with renewal options
advertising
Manufacturing - Prices have Renewal (Sales)
continually - Highly profitable
fallen - Minimal incremental
costs, full
incremental revenues
Installation Service
- Average fee is - Larger companies
$430 often bundle with
- Some companies initial sale
offer free or - Smaller firms often
reduced-rate charge extra for an
installation extended service
in exchange contract
for long-term
monitoring
contracts
</TABLE>
Forces Shaping The Electronic Security Services Industry
Fragmentation Persists Despite Recent Consolidation
GRAPHICS
U.S. Electronic Security Industry: Top 10 Industry Leaders 1995
12.9 billion ($ in billions)
Pie Chart
Illustration: $3.0 Represents Top 100 Providers
$9.9 Represents Approximately 13,000 Other Providers
Pie Chart
2.1 billion ($ in millions)
Top 10 Providers
ADT Pro Forma - $880
Borg - Warner (Wells Fargo) - $255
Republic Industries - $ 56
Protection One - $ 56
Westec Security - $ 62
Rollins Protective Services - $ 66
Brinks Home Security - $128
Westinghouse (Westar) - $150
Honeywell - $223
Ameritech(*) - $250
U.S. Electronic Security Industry: 1995 Revenue and Market Share Comparison
Bar Chart ($ in millions)
ADT/Alert Pro Forma $880 - 6.8%
Borg-Warner (Wells-Fargo) $255 - 2.0%
Ameritech* $250 - 1.9%
Honeywell $223 - 1.7%
Westinghouse Security (Westar) $150 - 1.2%
Brinks Home Security $128 - 0.9%
Rollins Protective Service $ 66 - 0.5%
Westec Security $ 62 - 0.5%
Protection One $ 56 - 0.4%
Republic Industries $ 53 - 0.4%
Source: Security Distributing & Marketing, May 1996.
- -------------
(*) Includes the acquired business of National Guardian and Security Link.
Forces Shaping the Electronics Security Services Industry
Industry Leaders
<TABLE>
<CAPTION>
Armed Armored
Design Manufacture Sell Install Maintain Monitor Response Transport Comments
----------- ---- ------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ADT Limited x x x x x Largest vertically
integrated
electronic security
services company in
the world. Reached
one-millionth
subscriber in 1995.
Recently acquired
Alert Centre
(131,000 customers)
and Automated
Security Holdings
PLC, primarily UK
company (229,000
customers).
Borg-Warner (Wells x x x x x x 146,000 subscribers
Fargo Alarm Services) in 1995. Operates
37 branches, 15
satellite offices.
Ameritech x x x x x Bought National
(SecurityLink, Guardian in October
National Guardian) of 1995 for $215
million. Emphasis
on wireless alarms.
344,000 subscribers
in 1995.
Honeywell x x x x x Increasingly
bundling security
with home and
building automation
systems. 190,000
subscribers in 1995.
Westinghouse Security x x x x x x Recently
Systems (Westar) acquired by Western
Resources. 376,000
total subscribers
together with
Western's Westar
unit. Primarily
residential provider.
Operates 46 offices.
Brink's Home Security x x x x x 378,700 subscribers
in 1995. Opened
five new offices for
a total of 52.
Employs 1,695
people.
Rollins Protective x x x x x 120,000 subscribers
Services in 1995. Operates
51 offices and
employs 680 people.
Westec Security Inc. x x x x x x 62,000 subscribers
in 1995. Primarily
West Coast operator,
over 40,000 accounts
in California;
operates 13 offices.
Protection One, Inc. x x x x x 141,000 subscribers
in 1995. Acquired
36 firms (53,000
accounts).
Recurring revenue
increased by 68%.
Republic Industries x x x x 150,000 subscribers
in 1995. Purchased
three major players:
Kertz Security,
Scott Security, and
Denver Burglar Alarm
(1996)
</TABLE>
Forces Shaping the Electronic Security Services Industry
Industry Sales: Strong Growth Expectations
Key drivers of future growth include:
- Public awareness of and concern about crime
- Current low level of residential market penetration
- Reduced insurance premiums for customers who have monitored security
systems
- Increased applications of existing technologies, including CCTV and
access control
- Digital and wireless technologies are reducing costs and making
security systems affordable to a larger potential customer base
GRAPHICS: Bar Graph Illustrating Industry Sales from 1988 through 1995 in
billions
CAPTION: U.S. Electronic Security Services Industry Sales
CAGR = 8.7%
1988 - $ 7.2
1989 - $ 8.8
1990 - $ 9.7
1991 - $10.2
1992 - $10.6
1993 - $11.2
1994 - $11.9
1995 - $12.9
Source: Security Distributing & Marketing (May 1995 and May 1996).
Overview of ADT's
Electronic Security Services Business
Overview of ADT's Electronic Security Services Business
ADT Today
Enjoys the largest market share and is well positioned to lead industry
consolidation.
Stock trades at near record high and has outperformed its competitors and
the overall market.
Core competency: service delivery.
Technology intensive "data interrogation company".
Increased emphasis on customer perspective in marketing and sales efforts.
Strong established brand.
Nationwide service capability.
Expanding channels of distribution.
Increasing financial strength.
Focus on maximizing shareholder wealth.
Overview of ADT's Electronic Security Services Business
ADT Has Achieved Significant Market Share in the Electronic Security Services
Industry ($ in millions)
1995 1995
Company Total Sales Total Subscribers
- ------- ----------- -----------------
ADT Ltd.(*) 1092 1,214,000
Borg-Warner Security Corp. 255 146,000
(Wells Fargo)
Ameritech (Security Link/National 250 344,000
Guardian)
Honeywell Inc. 223 190,000
Westinghouse Security Systems 150 376,000
(Westar)
Brink's Home Security 128 378,700
Rollins Protective Services 66 120,000
Westec Security 62 62,000
Protection One 56 141,000
Republic Industries 53 150,000
Source: Security Distributing & Marketing, May 1996.
- ----------
* Worldwide - (excludes the acquisition of Alert Centre and Automated
Security)
Overview of ADT's Electronic Security Services Business
Key Performance Metrics
Installation revenues
Installation cost
Selling, marketing and administration
Recurring revenues - monitoring and maintenance services
Overview of ADT's Electronic Security Services Business
Electronic Security Services - net Sales (Worldwide)(*)
GRAPHICS BAR CHART
NET SALES ($MM)
1991 $ 880.9
1992 $ 901.1
1993 $ 937.3
1994 $ 999.8
1995 $1,092.5
9 months 1996 $1,038.8
Total Number of Customers ('000's):
1991 647
1992 744
1993 864
1994 1,019
1995 1,214
9 months 1996 1,700+
- -----------
(*) Amounts for 1995 and prior years exclude the acquisition of Alert
Centre and Automated Security
Overview of ADT's Electronic Security Services Business
Contractually Recurring Revenues (Worldwide)
GRAPHICS BAR CHART
RECURRING REVENUES $MM
1992 - $ 518
1993 - $ 553
1994 - $ 558
1995 - $ 658
LTM Sept. 1996 (*) - $ 885
- ---------
(*) Reflects acquisitions of Alert Centre and Automated Security
Overview of ADT's Electronic Security Services Business
Residential Security System Unit Sales
GRAPHIC:
Arrow Illustrating 36.8% Compound Annual Growth Rate
BAR CHART
1989 - 29,000
1990 - 50,000
1991 - 80,000
1992 - 115,000
1993 - 145,000
1994 - 180,000
1995 - 215,000
1996E(*) - 260,000
- ---------
(*) Reflects acquisition of Alert Centre and Automated Security
Overview of ADT's Electronic Security Service Business
Electronic Security Services - Operating Income (Worldwide)(*)
GRAPHIC BAR CHART
OPERATING INCOME ($MM)
1991 - $127.7
1992 - $141.0
1993 - $154.0
1994 - $172.9
1995 - $188.7
9 months 1996 - $159.1
- ---------
(*) Excludes goodwill amortization, restructuring charges, and FAS 121 charge.
Amounts for 1995 and prior years exclude the acquisitions of Alert Centre
and Automated Security
Overview of ADT's Electronic Security Service Business
Nationwide Service and Distribution Network
GRAPHICS MAP OF THE 48 CONTIGUOUS UNITED STATES AND CERTAIN CANADIAN
PROVINCES ILLUSTRATING SERVICE AND DISTRIBUTION NETWORK LOCATIONS.
19 Customer monitoring centers
179 Sales and services offices
Overview of ADT's Electronic Security Service Business
European Service and Distribution Network
GRAPHICS MAP OF THE EUROPEAN CONTINENT ILLUSTRATING
SERVICE AND DISTRIBUTION NETWORK LOCATIONS.
10 Customer monitoring centers
34 Sales and services offices
Overview of ADT's Electronic Security Service Business
Key Sources of Operating Efficiencies
Customer monitoring center consolidation
National service and sales network
Reorganization to focus on key markets and customers along functional lines
of business:
- Customer service
- Residential sales and installation
- Commercial national account sales and installation
- Dealer development and acquisitions
Initiatives For Future Growth
Initiatives For Future Growth
The Competitive Landscape Offers Opportunities To Grow Internally And Through
Acquisitions
GRAPHIC CHART 1995 SALES ($ IN MILLIONS)
ILLUSTRATING CUSTOMER PROFILES SERVING:
% Residential 1995 Sales
Company Customers 1995 (in Millions)
ADT(*) 25 1092.5
Borg Warner 5 255
Ameritech 20 230
Honeywell 30 223
Brinks 95 128
Westinghouse 95 150
(Westar)
Rollins 82 66
Westec 82 62
Protection 95 56
One
Republic 70 53
Source: Security Distributing & Marketing (May 1996 and May 1996)
- -----------
* 1995 Sales figures excludes the acquisition of Alert Centre and Automated
Security
Initiatives for Future Growth
Overview of Internal Growth Opportunities
Residential market
- Size of the market: $4.7+ billion(*)
- Less than 10% of 98 million homes served
- Increasing demand for new security services
- Lower price points
Commercial market
- Size of the market: $5.6+ billion*
- Strong penetration in large companies: 438 of the Fortune 500
- Opportunities to increase market share in small companies
Significant operating leverage
- Significant monitoring capacity available
- All major infrastructure expenditures completed
Customer retention
- Service excellence
- Frequency of interaction with customers
- -------------
(*) 1994 figure based on STAT Resources.
Initiatives for Future Growth
Strategy for Residential Electronic Security Business
Leverage strong brand
- Established 1874
- National TV advertising campaign - targeted households
- "Security for Life"
New channels of distribution
- Strategic alliances
- Expansion of authorized dealer program
- Build account density to improve efficiency
New security services
- Security beyond the boundary of the home
- Integration of technologies to create new services and competitive
advantages
Initiatives for Future Growth
Strategy for Commercial Electronic Security Business
Targeting key security sensitive industries: banks, retailing,
manufacturing, universities.
Emphasis on increasing penetration in small businesses
- Established toll free small business hotline.
- Partnership with Philips N.A. to produce closed circuit TV for small
businesses.
ADT as "management consultant"
- Moving from direct sales force to client-specific solution oriented
team.
- Security "partnership" with customers.
Regulatory and insurance issues present opportunities for growth.
Initiatives for Future Growth
New Directions in Customer Service
Emphasis on increasing interaction with customers to better understand
needs and expectations in industry that has traditionally been activity
adverse.
Implementation of team concept in customer service.
Dedication to training, including technical certification for employees to
improve the quality of customer service.
Vendor input in R&D spending decisions to produce more user-friendly
products.
New Technologies
Increasing use of technology to provide security solutions
- Ensec
- Oracle
- MCI Systemhouse
- Internet
Widespread use of technology will reduce the cost of services to end users
and allow ADT to service customers over a wider geographic area from a
central monitoring station.
Initiatives for Future Growth
Expanding Distribution Channels
Expansion of Authorized Dealer Program
- From 58 at beginning of 1996 to 120 in 20 states by year end 1996.
New strategic alliances to broaden distribution channels and increase
access to residential market.
- Radio Shack - ADT systems now available in 4,500 retail stores.
- USAA Insurance - 3 million members have the opportunity to lower
their premiums through ADT / USAA Home Security Program.
- HFS / Century 21 - ADT home security services now offered through
national network of 10,000 Century 21 and ERA real estate offices.
Initiatives for Future Growth
New Security Services: CarCop
Revolutionary concept in personal protection and vehicle security, ready
for national roll out in 1997.
Centrally monitored vehicle tracking, location and security system.
Effective integration of three significant technological infrastructures
- Cellular Communications
- Global Positioning Satellite System (GPS)
- Monitoring by ADT, 24 hours a day
Only system that offers protection for both the car and the passengers
inside.
Initiatives For Future Growth
Summary of Recent Acquisitions
Alert Centre, Inc.
- Transaction Value: $119 million
- Provides services to 131,000 residential customers in the Southeast
- Tenth largest provider of electronic security services in the U.S.
- 1994 revenues of approximately $57.5 million.
Automated Security (Holdings) PLC
- Transaction Value: $376 million
- Provides 229,000 new accounts to customer base
- Leading provider of electronic security services in the UK
- Subsidiary (API Security) is largest security provider in California
- 8th largest in U.S.
- LTM Revenues of approximately $255.9 million
Initiatives for Future Growth
Recent and Pending Divestitures
U.K. Auto Auction Business - completed 4th quarter 1995
- Transaction value: $334 million;
U.S. Auto Auction Business - planned for 1st half 1997
- 9 months 1996 Net Sales: $222.8 million
- 9 months 1996 Operating Income: $33.4 million(*)
Rationale
Redeployment of capital from slower growing auction businesses into faster
growing security operations, principally in the U.S., will increase overall
growth rate.
Divestiture of auction business will result in ADT emerging as a "pure
play" electronic security firm, which in turn should increase its P/E
multiple.
- -----------
(*) Excludes FAS 121 charge.
Initiatives for Future Growth
Objectives of Future Acquisitions
Achieve and enhance economies of scale:
- Increase market share in regions where ADT currently operates
- Expand in contiguous geographic areas
- Increase volume at existing central monitoring stations
- Enhance brand equity
- Develop incremental customer awareness
Expand operating margin by elimination of redundant operating expenses.
Gain "first mover" advantage in consolidating a fragmented industry:
- The market expects ADT to lead this trend
Maintain favorable relative valuation among peer group:
- Stimulate growth rate of cash flow and earnings
- Increase market multiples (e.g., P/E, Mkt Cap/EBITDA)
Initiatives for Future Growth
Criteria for Prospective Acquisitions
Business Criteria Size and Scope of Operations
Comparable lines of business
Geographic overlap to achieve economies of scale
Strategic Position
Complementary market share in existing geographic areas
Strong reputation for quality service
Transaction Financial Impact
Criteria Accretive to EPS
Synergies material and attainable
Structure to minimize deterioration in financial
flexibility
Structure to maximize ability to invest capital
Market Reaction
Favorable if clear understanding of strategic rationale
and earnings impact
Appendix
Why Shareholders Should Vote Against Western Resources' Proposals
-- Shareholders Should Maintain a Board that is Independent from
Western
-- Western's Effort to Elect its Senior Officers to Run ADT is
Coercive and Premature
-- Board's Preliminary View is that Western's Offer is Inadequate
-- Western is not a Strong Strategic Partner for ADT
-- Western's "Business Opportunities" Argument is
Unsupported
-- Western Is a Heavily Regulated Utility
-- Western has Failed to Address How it will Re-Finance ADT's
Borrowings and Ongoing Business Growth
-- Western has not Addressed how it will Manage ADT's Business
[More text to follow]
CERTAIN ADDITIONAL INFORMATION: ADT Limited (the "Company") will be
soliciting proxies against the proposals of Western Resources, Inc.
(together with its subsidiaries, "Western") and revocations of proxies
previously given to Western for such proposals. The following individuals
may be deemed to be participants in the solicitation of proxies and
revocations of proxies by the Company: ADT Limited, Michael A. Ashcroft,
John E. Danneberg, Alan B. Henderson, James S. Pasman, Jr., Stephen J.
Ruzika, W. Peter Slusser, William W. Stinson, Raymond S. Troubh and Angela
E. Entwistle. As of January 7, 1997, Mr. Ashcroft is the beneficial owner
of 11,075,718 of the Company's common shares, Mr. Danneberg is the
beneficial owner of 102 of the Company's common shares, Mr. Henderson is
the beneficial owner of 621 of the Company's common shares, Mr. Pasman is
the beneficial owner of 2,000 of the Company's common shares, Mr. Ruzika is
the beneficial owner of 1,157,405 of the Company's common shares, Mr.
Slusser is the beneficial owner of 2,800 of the Company's common shares,
Mr. Stinson is the beneficial owner of 3,010 of the Company's common shares,
Mr. Troubh is the beneficial owner of 2,500 of the Company's common shares
and Ms. Entwistle is the beneficial owner of none of the Company's common
shares.
